Yen slides as risk appetite rises on U.S. talks

The yen (FOREX:USDJPY) dropped against 15 of its 16 major peers as risk appetite increased amid rising speculation that U.S. lawmakers will reach an agreement to avert a default, curbing demand for Japan’s currency as a refuge.

The euro rose for a fourth day against its Japanese counterpart (FOREX:EURJPY) as U.S. Republicans and President Barack Obama pledged further discussions on a debt-limit increase and government shutdown. Australia’s dollar headed for back-to-back weekly gains after the yield premium its two-year debt offers over the U.S. climbed to its highest since April. The krona gained versus the dollar as a gauge showed Sweden’s unemployment fell last month.

“The last 24 hours have given markets more confidence that the two sides can come up with an acceptable package,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said in a phone interview. “Those developments are driving some of the yen weakness we’ve seen.”

The yen depreciated 0.1% to 98.26 per dollar at 8:30 a.m. New York time, having slid 1.5% in the prior three sessions. It reached 98.55 versus the greenback, the weakest level since Oct. 1. Japan’s currency dropped 0.5% to 133.31 per euro, poised for a 0.9% weekly decline. The dollar fell 0.4% to $1.3567 per euro.

Stocks rose, with the Stoxx Europe 600 Index gaining 0.4%, and the MSCI Asia Pacific Index of shares climbing 1.3%. Japan’s markets will be closed Oct. 14 for a holiday.

Obama and House Republican leaders met for 90 minutes at the White House yesterday after House Speaker John Boehner of Ohio said he would offer a measure to postpone a potential U.S. default to Nov. 22 from Oct. 17.

Further Talks

The president didn’t accept or reject the Republicans’ plan for a short-term increase in the debt limit. The two sides planned further talks among their staff members last night to address the president’s insistence that Republicans agree to fund the government before starting broader fiscal talks.

The dollar has advanced 0.2% this week, according to Bloomberg Correlation Weighted Indexes that track 10 developed- nation currencies. The yen weakened 0.6%, while the Australian currency rose 0.7% and the euro strengthened 0.3%.

“The yen is underperforming against a basket of currencies and that is in part a function of potential progress in Washington,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “Currencies are reflecting a more confident global backdrop.”